Just to illustrate the usefulness of doing comparisons 'at the margin', if you want to stock up on cans of lager and the supermarket has two special offers, "15 cans for £12" and "20 cans for £15", the long way of calculating which is cheaper is:
£12 divided by 15 = 80 pence
£15 divided by 20 = 75 pence
Which involves two divisions and remembering your first answer. If you know from experience that a can normally costs around 80p, the easier method is to deduct one offer from the other, i.e.
£15 minus £12 = £3
20 cans minus 15 cans = 5 cans
You the divide £3 by 5 cans and arrive at 60p per can, which is clearly cheaper than 80p
, so the 20-can offer is better value.
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It wouldn't have been too difficult to calculate this the long way round, but this method helps a lot if the two special offers involve very odd figures, such as "18 cans for £13" and "24 cans for £19". Dividing those two and remembering the first answer is a lot trickier than dividing £6 by 6 cans = £1 per can, so the first offer is a lot cheaper.
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This may seem a bit mundane, but it is always the margin which matters, i.e. if some regulation or tax change comes in, don't worry too much about how it will affect big corporations or very successful businesses, worry about the impact on smaller businesses, start ups and those which are hovering at break even point. So you can cheerfully ignore anything the Confederation of British Industry says, as they represent large businesses and are actually quite happy if small business are struggling, it's far more important to listen to the British Chambers of Commerce or the Federation of Small Businesses.
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3 comments:
So too for house values which are determined at the margins and not across the board.
It doesn't take very many to come on the market at once to force a big drop.
EK, yup, this applies to just about everything. In fact, people probably do this anyway, i.e. two bedroom house £200,000 and three bed room house £280,000 - is one bedroom worth £80,000? and so on.
I just want to tank up and smash a bus shelter...and that is my right
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